Valuation

Similar to energy, real estate is asset-intensive and a company’s value depends on how much cash flow specific properties generate. – You look at Price / FFO (Funds From Operations) and Price / AFFO (Adjusted Funds From Operations), which add back Depreciation and subtract gains on property sales; NAV (Net Asset Value) is also important. … Read moreWalk me through how we would value a REIT (Real Estate Investment Trust) and how it differs from a “normal” company.

You use the same methodologies, except: – You look at industry-specific multiples like P / MCFE and P / NAV in addition to the more standard ones. – You need to project the prices of commodities like oil and natural gas, and also the company’s reserves to determine its revenue and cash flows in future … Read moreWalk me through how we might value an oil & gas company and how it’s different from a “standard” company.

There’s no “rule” that says this is wrong or not allowed, but it can be misleading to compare companies with dramatically different margins. Due to basic arithmetic, the 40% margin company will usually have a lower multiple – whether or not its actual value is lower. In this situation, we might consider screening based on … Read moreI have one company with a 40% EBITDA margin trading at 8x EBITDA, and another company with a 10% EBITDA margin trading at 16x EBITDA. What’s the problem with comparing these two valuations directly?

Usually you look at the TTM (Trailing Twelve Months) period for both sets, and then you look forward either 1 or 2 years. You’re more likely to look backward more than 1 year and go forward more than 2 years for public company comparables; for precedent transactions it’s odd to go forward more than 1 … Read moreHow far back and forward do we usually go for public company comparable and precedent transaction multiples?

1. Search online and see if you can find press releases or articles in the financial press with these numbers. 2. Failing that, look in equity research for the buyer around the time of the transaction and see if any of the analysts estimate the seller’s numbers. 3. Also look on online sources like Capital … Read moreI have a set of precedent transactions but I’m missing information like EBITDA for a lot of the companies – how can I find it if it’s not available via public sources?

This varies by bank and group, but two common methods: 1. You pick the report with the most detailed information. 2. You pick the report with numbers in the middle of the range. Note that you do not pick reports based on which bank they’re coming from. So if you’re at Goldman Sachs, you would … Read moreI have a set of public company comparables and need to get the projections from equity research. How do I select which report to use?

You value NOLs based on how much they’ll save the company in taxes in future years, and then take the present value of the sum of tax savings in future years. Two ways to assess the tax savings in future years: 1. Assume that a company can use its NOLs to completely offset its taxable … Read moreHow do you value Net Operating Losses and take them into account in a valuation?

In a Sum-of-the-Parts analysis, you value each division of a company using separate comparables and transactions, get to separate multiples, and then add up each division’s value to get the total for the company. Example: We have a manufacturing division with $100 million EBITDA, an entertainment division with $50 million EBITDA and a consumer goods … Read moreWalk me through a Sum-of-the-Parts analysis.

– All the sellers in the M&A premiums analysis must be public. – Usually we use a broader set of transactions for M&A premiums – we might use fewer than 10 precedent transactions but we might have dozens of M&A premiums. The industry and financial screens are usually less stringent. – Aside from those, the … Read moreBoth M&A premiums analysis and precedent transactions involve looking at previous M&A transactions. What’s the difference in how we select them?

The purpose of this analysis is to project what a company’s share price might be 1 or 2 years from now and then discount it back to its present value. 1. Get the median historical (usually TTM) P / E of your public company comparables. 2. Apply this P / E multiple to your company’s … Read moreWalk me through a future share price analysis.